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Pennsylvania Pyramid and Ponzi Scheme Laws

As the saying goes, if it's too good to be true, it probably is. In Pennsylvania, investment fraud can happen in a number of ways. Two of the most prevalent scams are "pyramid" and "Ponzi " schemes.

A pyramid scheme is formed when a promoter collects money from a certain number of people and instructs them to collect more money from others. The cycle goes on from there. As the pyramid grows, the number of people needed to sustain the pyramid becomes too large. Some people will fail to send in their money, or to recruit others, and the pyramid collapses. The majority of people end up on the “bottom” of the pyramid and inevitably lose their initial investment. They won’t get their money back or earn their promised fortune because no one is beneath them in the pyramid adding new money to the pot.

A Ponzi scheme is a fraudulent plan where newer contributions are used to pay early members to make it appear there are major earnings. While this is normally not a pyramid scheme, it is still fraud. Named for Charles Ponzi (1882-1949), who had a popular scheme that paid early investors with money gained from later investors.

Pennsylvania prohibits these type of activities under the following laws:

  • Pennsylvania's Unfair Trade Practices and Consumer Protection Law (pyramid schemes)
  • Pennsylvania's fraud and white collar crime laws (Ponzi schemes)

Here is a brief overview of how the Commonwealth of Pennsylvania combats pyramid and Ponzi schemes to protect consumers through state laws.

See White Collar Crimes, Financial Crimes, Securities Fraud, Wire Fraud, and Property Crimes for more information.

Code Section Unfair Trade Practices and Consumer Protection Law: 73 P.S. § 201-1 et. seq
Nicknames Pyramid nicknames: games, chain letters, buying clubs,motivational companies, mail order operations, or investment organizations
What is Prohibited

Pyramid Scheme : A pyramid sales plan is any scheme, whereby a person pays money or some other financial benefit for the chance or opportunity to receive compensation, regardless of whether he also receives other rights or property,

Ponzi Scheme : A swindle in which a quick return, made up of money from new investors, on an initial investment lures the victim into much bigger risks. Generally prosecuted as a federal crime, but can be prosecuted as state-crime under fraud and other state statutes.

Type of Crime Felony or misdemeanor, varies on nature of the crime
Who Enforces/Prosecutes the Law? Office of Attorney General for the Commonwealth of Pennsylvania
Punishment Pyramids and chain-letter schemes that require more than $25 as an “investment” are illegal in Pennsylvania. Violators are subject to prison or county jail, probation, fines, restitution to victim, community service, injunction/restraining order, revocation of business license, freezing business assets.

There are several federal protections that may be available to you. To learn more about federal consumer protection laws, contact the following agencies:

State laws are constantly changing -- please contact a local consumer protection lawyer or a criminal defense attorney who can help you better understand the current laws.

Learn More About Your Case with a Free Legal Evaluation

If you believe you are the victim of a Ponzi scheme or pyramid scheme, you will want to contact the Pennsylvania Attorney General's office to file a claim. If you have been charged with such a crime, your best bet is to seek the counsel of a qualified defense attorney. Get started today with a free criminal case evaluation.

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